Arista Networks (ANET.US) is losing nearly 4% today, but at one point the network switch and data center company's stock was losing nearly 7%. The reason for these declines is the expected strengthening of Nvidia's networking business, as evidenced by Nvidia's announcement yesterday of the Spectrum X. Still, large-scale networking solution customers (major technology companies) can take advantage of the open vendor ecosystem and not be limited to Nvidia, unless the company offers highly attractive discounts for end-to-end customers.
- It's worth considering that demand continues to outstrip available supply in the broad AI/cloud market, and Arista has been a company developing network technologies since 2004. The company also has significant intellectual value in this area, and it is unclear whether Nvidia's solutions will prove to be superior in any aspect to those proposed by Arista.
- Nevertheless, the prospect of a major competitor pushing into the network switch sector has pushed the company's shares lower. Bloomberg Intelligence assessed that the push for more cost-effective solutions will continue to position Ariste well in AI networks, with cloud technology. As a result, Arista is still on track to achieve its announced $750 million in sales of AI switch solutions, by 2025
- The company appears to be on track to achieve sales growth of 12 - 14% or more in 2024, in the face of AI demand requiring the expansion of AI-based networks by customers in the cloud computing space. In a recent report, Bloomberg Intelligence pointed out that 'artificial intelligence could be a long-term, multi-year catalyst for growth' for Arista, although the fact is that Nvidia is likely to capture some of the market.
- However, it is very large, and it does not appear that a joint market existence will be a threat to any of the companies in the foreseeable future. In the coming quarters, the market is likely to keep a close eye on how much demand Arista's 200-, 400- and 800-gigabit high-performance network upgrades encounter. Ethernet itself is undeniably playing an increasingly important role in the back-end of AI infrastructure.
Ethernet - a new catalyst for growth?
- According to BI, Arista's sales growth may pick up in the second half of 2024, and this pace may not be fully reflected in the company's recently raised sales forecast to 12-14%. The reason is catalysts in the AI product area, primarily Ethernet. The data shows high demand in Arista's corporate data center and switch sector, although other companies are reporting declining orders in this area.
- The company continues to lead the AI networking sales market, which could be worth $3.6 billion in 2025. Arista's Ethernet progress has been significant, and as many as 4 out of 5 large-scale cloud computing providers have selected the company for pilot projects. It is likely that the timing of when companies will acquire Ethernet from Arista will depend on the timing of the arrival of hardware powered by AI Jericho3 chips from Broadcom.
- BI projects 16% growth in Arista's sales in 2025, signaling that the company will reap the long-term, growing benefits of rising demand, new products and higher production capacity. Analysts also estimate 14.3% sales growth in H2; to $6.7 billion in 2024 and $8.06 EPS (4% above consensus).
Arista Networks shares (D1 interval)
Buyers quickly returned to buying ANET shares. On the chart, we see a candle with a high lower shadow of the so-called dragonfly doji. Key supports are located at $272 and $237 per share.
Source: xStation5
